Investors are leaving equity funds out in the cold, according to the latest Morningstar data.
In January, investors took close to $14 billion out of active U.S. equity funds. In the past 12 months, these outflows totaled $111 billion.
But it’s not just active U.S. equity funds that are losing investors, passive U.S. equity outflows reached nearly $3 billion last month, the research group says.
“The most interesting development, looking at the January numbers, is the negative flow for passive U.S. equity,” Morningstar senior markets analyst Alina Lamy explained in the latest report, released Friday.
“The established trend, in recent months, indicated strong outflows from active U.S. equity (a trend that is continuing) and inflows to passive U.S. equity (which did not happen in January,” Lamy stated. “One ETF, SPDR S&P 500 (SPY), was largely responsible for the passive U.S. equity outflow this month.”
SPY had outflows of $26.2 billion last month. According to Morningstar, this is the second-largest monthly outflow in dollar terms from any fund or ETF on record. (It lagged behind PIMCO’s Total Return Fund (PTTRX), which has outflows of $32.2 billion in October.) SPY’s drop represented a 12% decline in assets.
The drop in SPY, says Lamy, is likely due to sales by active fund investors and hedge fund managers, who use SPY as equity holdings in portfolios at the end of the year. In January, they tend to sell SPY and purchase individual stocks. This has generally been the pattern for the past five years.
In contrast to the equity outflows, all other active Morningstar category groups had positive flows in January, especially municipal-bond and sector-equity funds. Inflows into active funds reached $470 million.
Passive funds, though, outpaced these inflows with $26.1 billion of additional assets. Taxable-bond funds led passive products with inflows of $10.9 billion.